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East-West Debt october 2003 news, update : VENEZUELA

Venezuela:  servicing of debt a "priority"

After an unsuccessful attempt to force out leftist President Hugo Chavez, the oil industry, on which Venezuela largely relies for its financial stability, is back to normal in the country. Venezuelan oil production surpassed the 3.2 million barrel daily volumes produced before December 2002, the month of the strike in the oil industry that was supposed to topple Chavez.

The government dealt with the work stoppage by firing some 18,000 employees of the state oil company Petroleum of Venezuela (PDVSA) and had production resumed to regular levels within a few months. Many in the 24-million-people nation share the fate of the oil-industry workers fired during the strike, with unemployment pegged at 25 percent of the workforce. For the economy, the oil strike meant negative growth of 29 percent in Q1 2003 and a nearly-50- percent weakening of the bolivar, the local currency, against the dollar.

In order to tame the flow of capital out of the national economy, in February the government fixed the bolivar at the official rate of 1,598 to the dollar, 17 percent stronger than what it last traded in order to keep foreign cash reserves intact.
The country's president made assurances that the servicing of foreign debt and the import of food and medicine would be his priority. The country's foreign reserves are still at $11.26bn, which is enough to cover the cost of imports for ten months.

The new currency rules state that foreign companies need to register with the government before they can transfer profits out of the country. Chavez added that access to international currency markets would be restricted for the strikers, while inspections forced importing companies to purchase foreign currency through a government agency, Cadivi. Businesses complain that the government sells the dollars in quantities which do not guarantee uninterrupted supplies of imported goods. Last year, Venezuela imported US$12bn worth of goods, yet during the first four months of operations, Cadivi sold just $500m.

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